Liberalisation, the stock market and the market for corporate control: a bridge too far for the Indian economy?

Abstract An outstanding development of the 1990s, closely associated with the economic reform programme initiated by Dr Manmohan Singh, has been the very fast expansion of the stockmarkets and their growing role in the Indian economy. Both internal and external liberalisation measures, undertaken as a part of the financial reform, as well as the more liberal general economic ethos created by the reform, have largely been responsible for this evolution. The first part of this paper reviews the stockmarket reforms and comments on the available evidence on the effects of stockmarket expansion on corporate growth and on the real economy. The second part focuses on the proposed next stage of the reform, being urged by the financial community. Their specific proposal is to establish a market for corporate control in order to maximise the benefits from stockmarket development. The government has recently published a Takeover Code which suggests that it is not at least opposed to the evolution of such a market.